Assessment cap reform 2014 2020 in Emilia-Romagna Region

Chapter 20
Assessment of CAP Reform 2014–2020
in the Emilia-Romagna Region
R. Gigante, F. Arfini and M. Donati
Abstract The aim of this contribution is to evaluate the impacts of the European
Commission proposals on rural areas of the Emilia-Romagna Region in Italy. The
model considers the three main characteristics of the CAP 2014–2020 reform, and in
particular measures the impact of greening criteria on land allocation in different
farm systems and economic effects on rural areas. It will show which rural systems
and types of farm will be favored or penalized by the reform. The model will
also provide results on dynamics in land use. The assessment is made using an
‘‘integrated’’ regional model based on Positive Mathematical Programming (PMP).
20.1 Introduction
The debate on the Common Agriculture Policy (CAP) for the years 2014–2020
started in 2011, and at the time of writing is nearing conclusion. The reform was
approved by the final European plenary session on 13th March 2013 by 25 of the 27
Ministers of Agriculture. On April 11th, it was discussed by the Trilogue in informal
tripartite meetings of representatives of the European Parliament, the Council and
the Commission. The goal was to reach a common political agreement by the end of
June. But on the other hand, the European budget, including agriculture funding, is
at present still undefined. In this uncertain context, what remains of the European
Commission’s official proposal of 2011 (European Commission 2011a) is that
future CAP will continue its main focus on environmental measures directing
European farms toward a model of sustainable agriculture responsible for the
management of environmental resources and attentive to public financial resources
and well-being of consumers (Matthews 2013). The aim of this contribution is to
R. Gigante (&) Á F. Arfini Á M. Donati
Department of Economics, University of Parma, Parma, Italy
e-mail: gigante@inea.it
C. Zopounidis et al. (eds.), Agricultural Cooperative Management and Policy,
Cooperative Management, DOI: 10.1007/978-3-319-06635-6_20,
Ó Springer International Publishing Switzerland 2014
371

evaluate the impacts of the European Commission proposals (European Commis-
sion 2011b) on rural areas in the Emilia-Romagna Region in terms of province,
altitude, and farm type.
The study will consider the impact of greening criteria, capping and the
regionalization scheme on land allocation, and the relative economic effects on
different regional farm systems. It will focus on the regional effect of the CAP
reform, considering the nonhomogeneity of the Emilia-Romagna Region, and
show the main consequences in terms of land use and income distribution among
different farm types and rural systems across one of the most important Italian
farming regions.
The evaluation will be made by a regional model based on the use of Positive
Mathematical Programming (PMP). Data are extracted from an integrated regional
database that matches FADN Data with IACS information for the year 2010. The
chapter is organized as follows; Sect. 20.1 describes the evolution of CAP in
environmental measures, changes in distribution of aid, and the system of trans-
ferring resources from Pillar 1 to Pillar 2; Sect. 20.2 focuses on the methodology
and describes the AGRISP model and its implications; Sect. 20.3 describes the
new measures taken into account by the model, detailing amounts and restrictions
imposed by the reform; Sect. 20.4 shows results from the model and their
implications for changes in land use and economic indicators. Results are shown at
regional and province level and also by altimetry. The last section discusses the
new agriculture policy and the possible effects on rural areas in Emilia-Romagna.
20.2 The Policy Setting
This section discusses the main innovations in the CAP 2014 reform, and how these
have evolved from recent policy reforms. The new CAP in fact fulﬁlls many
medium- and long-term expectations both within and outside the EU. The Health
Check of 2008 enforced a series of provisions of the 2003 reform, and the new
reform will continue to enhance intervention on environmental protection (Anania
2008). The main concerns are the new greening measures, agricultural development
and modulation methods, with new proposals oriented toward rural development
and setting CAP as a more equal policy between Member States (MS) with a new
single payment scheme. Reform paths can be viewed from either an economic point
of view or as a requirement to renew environmental strategies at a higher level.
Economically, the necessity to reduce CAP expenditure and the eradication of the
old system of direct support will cut the EU budget, bringing down both surplus
production and international tensions (De Filippis and Frascarelli 2012). Envi-
ronmentally, the measures reﬂect institutional concerns and widespread awareness
of limits to availability of natural resources, and are a prerequisite for acceptance of
expenditure by European taxpayers (European Commission (a) and (b)).
372 R. Gigante et al.

20.2.1 Evolution of Environmental Focus in the CAP
From the start, the CAP has been characterized by reforms that have tried to align
the varying objectives of the Community in agriculture in European society. In the
beginning, at the time of the Treaty of Rome (1957), CAP focused on agricultural
policy with the priority of food security. In subsequent years, the emphasis moved
to a new concept, linking agriculture to environmental issues. The first concrete
attempt at this was in the MacSharry reform (1992) which gave EU farm policy a
new role in an attempt to re-establish a proper relationship between agriculture and
the environment and also to revise CAP expenditure limits. The MacSharry reform
introduced the concept of ‘‘green’’ to the CAP, and its ‘‘accompanying measures’’
(Reg. EC no. 2078/92) contained predominantly agri-environment schemes, such
as the adoption of environmentally friendly farming methods (e.g., organic
farming), reducing the use of chemical products and processes and the extensifi-
cation of farming. This led to the 1999 reform, Agenda 2000, which aimed to
strengthen public intervention in agriculture for sustainability, especially envi-
ronmental sustainability, and then to the Fischler Reform of 2003 (Reg. EC no.
1782/2003). The Fischler Reform introduced the principle of decoupling aid and
the cross-compliance mechanism: the farmer is obliged to comply with minimum
environmental standards in order to obtain agricultural support (Sorrentino et.al.
2011).
In 2008, a further review of the CAP (Health Check or Fisher-Boel Reform)
completed the decoupling process and amended specific additional intervention,
reinforcing its environmental objectives. Among other measures, the controversial
Article 68 of EC Regulation No. 73/2009 provides annual additional payments for
forms of agricultural management of the environment, such as extensive animal
farming. The last step in this evolution on environmental issues will be imple-
mented in programming period 2014–2020 with the new greening measures.
Although at the time of writing, the European Commission has yet to take final
decisions on the new CAP, this contribution attempts to make a preliminary
evaluation of the effects on the agriculture sector in the Emilia-Romagna region.
20.2.2 A More Equal CAP
Since the early 1990s, CAP policy has been gradually reformed toward market
orientation in the two reform packages of 2003 and 2007. These replaced a large
share of the price support by direct payments per hectare of land and per head of
livestock. These direct payments were only paid to certain crops and certain types
of livestock. In 2003, the Fischler reform substantially changed European policies
for supporting farmers with decoupling of direct payments. The new ‘‘Single
Payment Scheme’’ introduced payment per hectare of agricultural land, indepen-
dently of the individual farmer’s output. It is paid regardless of whether the farmer
20 Assessment of CAP Reform 2014–2020 373

produces or not, as long as the land is kept in good agricultural and environmental
condition. However, there are exceptions to the general principle of decoupling,
since individual member states are currently allowed to keep limited coupled
payments for some products (partial decoupling). The reform was intended to make
European agriculture more competitive and market-oriented as required by WTO,
and at the same time to provide support to farmers with less distortion of production
and trade. Decoupled payments allow farmers to respond better to signals from the
market, to supply the food sector, and to create a basis for providing public goods.
The scheme was amended slightly in 2007 and has been in force until today. CAP
2014–2020 is expected to provide for a fully direct payment system for all MS and
by the beginning of 2019, all MS will move to a uniform payment per hectare
scheme, applied at the national or regional level. In Italy as in some other MS, and
consequently in Emilia-Romagna, this reform will be a big challenge for farmers
accustomed to the concept of acquired rights. The change is to be accompanied by
other measures; cross-compliance is maintained and greater modulation is intro-
duced to the new coupled scheme. It could also lead to redistribution between
agrarian regions and farms, and between production sectors, which could affect the
competitiveness of different farm activities and sectors. There will very likely
be variations in the competitiveness of farms and sectors.
An example of the effect of aid redistribution at the local level is shown in
Fig. 20.1. Using administrative regional boundaries, it shows the present situation
and the effects of the new regionalization, with the future single payment scheme
in the different provinces of Emilia-Romagna (Gigante 2013). The shrinkage of
financial resources and decoupled payments reduce the average aid level in most
provinces. Because of the type of production (cereal, tomato, milk), many prov-
inces lose resources in favor of areas producing fruits and wine, which were not
eligible for payments in the past.
The effect of aid redistribution can also be differentiated by altimetry
(Fig. 20.2). The effect is much stronger on plain areas, where resources are cut for
the benefit of mountain areas. At altimetry levels too, the type of production is
important: plain areas used to receive aid for almost all hectares, so the redistri-
bution operates a linear reduction. Mountain and some hill areas gain advantage
thanks to smaller cultivated surface area and because most farms specialize in milk
production. In fact, despite the milk quota system, mountain areas have until now
been less favored.
20.2.3 New Resources to Pillar 2
The new capping mechanism appears to be very different from the scheme
introduced by the Health Check in 2007 and in force today. The current scheme
applies the mechanism of modulation only to beneficiaries receiving more than
€300,000 in direct payments, which are subject to an additional cut of 14 %. But
under the new scheme, the upper limit of direct payments to farmers will be

€300,000. However, in order to preserve and stimulate the application of envi-
ronmental measures and practices, the cost of greening will not be considered in
the budget. In order to maintain employment in the sector, the capping mechanism
will be mitigated for farms employing waged labor. The EU Commission draft
states that the direct payments scheme will take into account the employment level
on farms, and the amount of wages actually paid and declared by farmers for the
previous year, including social security contributions and employment taxes, will
be added to the total amount of direct payments due.
As the result of capping, more resources will be available for transfer to Pillar 2
(Rural Development). Moreover, given that each MS has a different agriculture
system, each MS is given the option of transferring up to 10 % of national
ﬁnancial resources assigned for direct payments (Pillar 1) to Rural Development
(Pillar 2). In addition, MS which receive less than 90 % of the EU average direct
payments can now transfer up to 5 % of the funds assigned for Rural Development
to the Direct Payment System.
Fig. 20.1 Redistribution of aid in Emilia-Romagna provinces
Fig. 20.2 Redistribution of aid in Emilia-Romagna provinces by altimetry

20.3 Description of the Model: PMP and Database
Positive Mathematical Programming (PMP) included in the Agricultural Regional
Integrated Simulation Package (AGRISP) model (Arfini et al. 2005) was used to
assess the impact of CAP 2014–2020 on Emilia-Romagna. This model is one of
the possible applications of the PMP across Europe (Heckelei et al. 2012). In this
research, AGRISP was used to reproduce the effects of the regionalized single
payment system, greening measures, and the new capping mechanism on farm
behavior and farm economic performance. As noted in the introduction, the
simulations are based on the draft by the European Commission, so rather than
certain consequences they indicate possible potential consequences. The simula-
tions demonstrate a capability differential of farms in reacting to new policy and
market scenarios, and show how the reform will affect the production and eco-
nomic levels of the farms investigated.
20.3.1 Evolution of PMP Methodology
As is well known, PMP has a long history (Heckelei and Britz 2005; Heckelei et al.
2012). After early Linear Programming models, which showed the optimum
combination for production according to the technological matrix, the next step
was positive models where the optimum is considered at the observed production
level, which reveals farm cost structures. The main aim here is to give as true a
picture as possible of the current situation, then simulate the behavior of farm
producers as agricultural policy intervention is shifted (Arfini and Donati 2013).
The versatility of PMP means it can be fitted to valuation models with different
levels of detail, so it can be applied to a single farm (business model) or for
simulations of the dynamics of a territory (regional model) or a production sector
(sectorial model). It is also possible to structure a mixed model using an integrated
database including regional and sector aspects. Despite their differences, these
models have a common matrix deriving from their microeconomic formulation
and embodied in the use of information collected at the enterprise level, regardless
of the ‘‘scale’’ (corporate, regional, or sectorial) of the simulation. In business
models the scope is limited to the single firm, but the models used here provide
regional or sectorial results for aggregate geographical areas or entire productive
sectors. Sectorial models are usually used by decision-makers in assessing agri-
cultural policy for a single and specific production. But although their primary
objective is to analyze supply changes of products subject to intervention, the
models can also have a regional significance to the extent they quantify the impact
of the policy at the regional, national, or international level (Arfini and Donati
2011). The element that distinguishes the sectorial from the regional model is the
aggregation criteria of the farms; for sectorial models, the aggregation criteria is
the farm type.

The application of mathematical programming to agricultural policy entails
defining from the outset a reference to a regional area (in the case of a regional
model) or to a specific productive sector (sectorial model). Regional and sectorial
models are not necessarily alternatives; in general, a single productive segment is
analyzed individually with reference to a territorial area, in contemporaneous
regional and sectorial studies. However, the variables of interest and the PMP
model need to be defined a priori.
So in a complex scenario like local rural development the model needs to cover
different farm types and truthfully represent land use and productivity levels of the
farmers in the area. It is useful to minimize the amount of data, although there
needs to be enough detail to describe both individual farmer behavior and tech-
nologies and production decisions at the farm level. AGRISP (Arfini et al. 2005),
which shows in detail the use of land, farm specialization, and different farm
classes by size, is an appropriate compromise. AGRISP in fact represents a fusion
of two databases: the AGEA database on land use of each farm, and the FADN
database of the profitability of each production process activated. So rather than a
‘‘model,’’ AGRISP is a tool of analysis that overcomes limitations of other similar
tools used to simulate agricultural policies at the regional level. The combined use
of AGRISP data and PMP methodology means that all output models can be
calculated precisely.
In Europe as in Italy, at present, the main source of statistical data on structural
characteristics of farm production and economics is the Agricultural Accountancy
Data Network (FADN). Data are obtained by survey and the database is structured
as a statistical sample of all farms. It can be considered ‘‘ideal’’ for coefficients on
farm production techniques and farm economic characteristics. FADN has, how-
ever, three major limitations: (i) a lack of technical information on the amount of
input used for each process; (ii) the representativeness of data is based on the
standard gross margin, while the presence of a specific process reflects the land
use; (iii) the level of representativeness of farms decreases significantly from
regional level to provincial level.
In particular, the first aspect (the lack of quantitative data on inputs) is an
essential element to allow simulation models (especially those based on mathe-
matical programming) in order to define the technology used by that of single
farms. Consequently, the lack of such data excludes the use of FADN for the
purposes of analysis of agricultural policy through the use of mathematical pro-
gramming. The limits on the representativeness of FADN data also make it difficult
to represent production systems in areas smaller than NUTS3 and perform statis-
tical inferences to the statistical universe. To overcome this limitation, AGRISP
integrates FADN with the Italian administrative database AGEA.1
The integration
of FADN and AGEA thus makes it possible to measure the exact dimension of
agricultural production systems, gross marketable output, subsidies distributed, the
1
AGEA is the Italian official body entitled to pay farmers eligible for CAP payments. Farmers
have to provide AGEA with all the information related to agricultural activities including land use.

volume of variable costs attributable to each process, and the gross income for each
type of activity.
The two databases combined in a single database FADN-AGEA give a com-
plete dataset of land use and technical and economic parameters for production
processes of all the farms included in the analysis. The aggregation of information
is performed at the level of macro-farm (farms in the AGEA database grouped by
size) and farm specialization by each agricultural area (a homogeneous altitude
area belonging to the same province). More precisely, in each province three
altitude levels, seven size classes (0–10 ha, 10–20 ha, 20–30 ha, 30–50 ha,
50–100 ha, 100–300 ha, [300 ha) and three economic sectors (Fruit and vegeta-
bles, Animal production, and Others) were considered, where each class represents
the minimum farm type reference. Naturally each macro-farm considers all agri-
cultural activity present in the territory as they are registered in the AGEA data-
base. The integration of the two databases was effected by specific software able to
perform statistical analysis and yield information on farmer choices on production
and economic indicators.
20.3.2 AGRISP Model Overview
The AGRISP model is able to estimate for each province and at the overall
regional level the effects of CAP measures on farmer production plans and farmer
income. It gives insight into production decisions for the current observed situation
(baseline) and into future decisions after the CAP reform, and thus models farmer
strategy. The AGRISP model consists of three main phases: (i) Extraction of data
on farms in the sample; (ii) PMP estimation of cost functions at macro-farms level,
calibration to observe reality and simulations; and (iii) Analysis of results.
AGRISP can be defined as a regional tool, because in a single resolution it can
simulate the effects of agricultural policies on different homogeneous areas
(agricultural regions) constituting the administrative regions (provinces). It can
also be defined as ‘‘integrated’’ because it includes modules that manage the flow
of information for the functional analysis of agricultural policy. The process of
organizing information is probably the most innovative element. AGRISP provides
information on the production choices made by individual farmers, capturing their
strategies in the prereform situation and in projected results organized by agrarian
regions and at the regional level. The use of a single database covering land use
(from AGEA) and the profitability of single processes (from FADN) combined
with PMP methodology allows analysis of the impact of agricultural policies both
at the micro- and macro-level. It is useful for both setting rural policies and
estimating changes in supply at the regional level. In simulating the effects of
agricultural policy at the regional level, AGRISP aggregates cost functions into a
single regional model, and constructs a set of constraints able to simulate the
policies for the whole region (Fig. 20.3).

20.4 The Policy Scenario
In this evaluation of the CAP reform, three main aspects have been considered
based on the regulation proposal of the European Commission n. 625-COM2011.
These are basic payments, greening measures, and capping.
Direct Payments will follow the new Basic Payment Scheme. Until today, the
EU-15 was covered by a Single Payments Scheme allowing for historical refer-
ences, or a payment per hectare, or a ‘‘hybrid’’ combination of the two, and most of
the EU-12 was covered by the Single Area Payments Scheme (SAPS). From 2013,
a single new ‘‘Basic Payment Scheme’’ applies. The aim is to signiﬁcantly reduce
discrepancies between the levels of payments between farmers, between regions
(internally) and between MS through full implementation of current legislation.
All MS will be obliged to move toward a uniform payment per hectare at the
national or regional level by the start of 2019. In line with the Commission
proposals in the Multi-Annual Financial Framework, the national envelopes for
direct payments will be adjusted so that those who receive less than 90 % of the
EU-27 average payment per hectare will receive more. The gap between current
payments and 90 % of the EU-27 average is reduced by one-third. The Com-
mission is committed to discussing a longer term objective of achieving ‘‘complete
convergence’’ through equal distribution of direct support across the European
Union in the next Financial Perspectives after 2020.
In addition to the Basic Payment, each farm will receive a payment per hectare
for following farm practices beneﬁcial for the climate and the environment. MS
will use 30 % of the national envelope in order to pay for this. The draft proposal
Fig. 20.3 Data structure in the AGRISP model

of the European Commission states that this payment will be mandatory, and will
not be subject to capping. The three practices eligible for payment are: (i) main-
taining permanent pasture, (ii) implementing crop diversification (at least 3 crops
on arable land, none of which account for more than 70 % of the land, and the
third crop at least 5 % of the arable area); and (iii) maintaining an ‘‘ecological
focus area’’ of at least 7 % of farmland (excluding permanent grassland). This area
may include field margins, hedges, trees, fallow land, landscape features, biotopes,
buffer strips, and wooded areas.
The capping mechanism will define the amount of support that any individual
farm can receive from the Basic Payment Scheme. The sum will be limited to
€300,000 per year. Current payment levels will be reduced by 70 % for the part
from €250,000–300,000; by 40 % for the part from €200,000–250,000, and by
20 % for the part from €150,000–200,000. However, in order to take employment
into account, the farm can deduct the costs of salaries, including taxes and social
security contributions, declared the previous year, before these reductions are
applied.
The AGRISP model is now applied to Emilia-Romagna to evaluate the effects
of the new EU support measures in the agricultural sector. Results are detailed at
the regional and provincial level, and by altimetry. The following scenarios are
identified:
1. Baseline The base scenario on which the comparison is carried out is the
situation recorded in 2010, obtained by updating the 2007 calibrated solution
with the market price variation for 2007–2010.
2. Greening This scenario simulates full application of the CAP reform. All
constraints and the new policy aids are activated (new Basic Payment Scheme
with distribution to all Utilized Agricultural Areas (UAA), mandatory greening
scheme, and new capping mechanism).
For the value of aid per hectare for the Emilia-Romagna region, the amount
calculated by the National Institute of Agricultural Economics is a basic region-
alized payment of 148.4€/ha, while for the greening component they calculate
89.4€/ha. These figures are used in our simulations, which also consider the
reduction of total aid under the mechanism of gradual reduction according to the
scale described above.
20.5 The Impact of Policy
20.5.1 Variation in Land Use
Results of land use by single process simulations show changes between the
current baseline scenario and after reform in the greening scenario. Figure 20.4
reports the results in hectares, and Table 20.1 reports the results in percentages.

The results show that at the regional level, greening will lead to a big reduction of
almost 38,000 ha in cultivated areas. There will be different impacts on various
crops as farmers adjust production choices to market prices.
Basically there will be a decrease in almost all crops, except for certain cereals
(barley, oats, etc.) which show a big increase (+18 %). But there will be big
decreases in surface areas of wheat (-4.3 %) from the current 114,000 ha to about
Fig. 20.4 Variation in
agricultural land use

110,000 ha, maize (-6.0 %) by about 75,500 ha, other seed crops (e.g., sunflower)
by 1,000 ha (-10.5 %), and the biggest decrease will be in fodder (-10.6 %),
which decreases from the current 264,000 ha to about 236,000 ha.
As noted, the decrease in fodder by about 30,000 ha is the largest. It is probably
due to two main factors; the steady increase in profits on cereal crops especially in
recent years, and low market profits on fodder crops excluding crops used for
breeding. These changes are extremely significant for Emilia-Romagna because
fodder tends to take place prior to abandonment of the land. Greening measures
would further bring down farm profits. The lowering of fodder crop is justified also
by the choice of entrepreneur to use this type of crop for environmental purposes as
required by greening measures. This type of adjustment entailed by the CAP reform
illustrates how the market will now drive production choices for farmers, who will
no longer focus on maximizing payments but will have to maximize farming profits
instead. Table 20.2 shows the variation in land use by altimetry bands.
20.5.2 Variation in Economic Values
Table 20.3 shows the changes in economic components per hectare at regional and
altitude levels. Gross Salable Production (GSP) falls by 7.4 % from the current
3,276€/ha to 3,033€/ha. This is mainly because part of the land is taken out of
production to meet greening requirements. The values of GSP by altimetry bands
present a heterogeneous distribution: contraction on plains is about -5.2 %, while
hills and mountains decrease by -10.8 and -20.5 %, respectively. The reduction
in variable costs (-7.7 %) is in line with the changes in GSP as farms make the
mandatory adjustments required by greening and halt production of certain crops.
Table 20.1 Detailed variation in agriculture land use
Processes Baseline (ha) Green (ha) Base/green
(Variation in %)
Wheat 113,935 109,008 -4.3
Corn 80,476 75,665 -6.0
Other cereals 21,665 25,639 +18.3
Rice 7,865 7,576 -3.7
Soybean 21,608 20,732 -4.1
Other oil seeds 9,180 8,214 -10.5
Sugar beet 72,711 71.863 -1.2
Tomato 28,518 27,837 -2.4
Fodder 263,784 235,802 -10.6
Permanent meadows and pastures 11,073 11,473 +3.6
Other crops 39,020 38,397 -1.6
Surface greening 0 37,630 –
Total 669,835 669,835 –

These dynamics appear mainly in plain and hill areas, while in mountain areas the
structural rigidity of production does not permit a reduction in variable costs
proportional to the fall in GSP. The gross margin at the 1st level, calculated by
subtracting variable costs from GSP, which is an indicator of business efﬁciency, is
Table 20.2 Variation of agriculture land use by altimetry
Plain Hill Mountain
Processes Greening (ha) VAR
(%)
(ha)
Greening (ha) VAR
(%)
(ha)
Greening (ha) VAR
(%)
(ha)
Wheat 91,274 82167 -9.9 21,867 22,473 2.8 795 4,367 449.5
Corn 72,678 67.456 -7.2 7,744 8,072 4.2 54 137 154.1
Other cereals 11,556 10,745 -7.0 9,278 10,558 13.8 831 4,336 422.0
Rice 7,865 7,576 -3.7 – – – – – –
Soybean 21,354 20,495 -4.0 254 237 -6.9 – – –
Other oilseeds 8,882 7,946 -10.5 298 268 -10.1 – – –
Sugar beet 70,629 69,759 -1.2 2,082 2,104 1.1 – – –
Tomato 23,558 22,837 -3.1 4,928 4,965 0.8 32 34 6.2
Fodder 122,733 115737 -5.7 93,720 83,484 -10.9 47,331 36,580 -22.7
Pastures 1,916 1,966 2.6 5,291 5,485 3.7 3,866 4,022 4.0
Other crops 36,110 35,485 -1.7 2,882 2,852 -1.0 28 60 114.9
Surface
greening
– 26,385 – – 7,844 – – 3,401 –
Table 20.3 Variation of economic indicators at regional and altimetry levels
Baseline (€/
Ha)
Green (€/
Ha)
VAR
(%)
Region level GSP 3,276 3,033 -7.4
– Total variable costs 2,356 2,176 -7.7
= Gross margin (1° level) 920 857 -6.9
+ Total AID 307 237,8 -22.5
= Gross margin (2° level) 1,227 1,095 -10.8
Plain areas GSP 3,416 3,238 -5.2
+ Total AID 339 237 -29.9
Hills areas GSP 2,922 2,606 -10.8
+ Total AID 246 237,8 -3.4
Mountain
areas
GSP 3,029 2,409 -20.5
= Gross margin (1° level) 1,041 763 -26.7
+ Total AID 186 237 27.6

thus affected in different ways. Overall in the region it falls by 6.9 %; but while in
plain areas it falls -4.1 %, and in hill areas it falls -7.6 %, in mountain areas it
falls by -26.7 %.
As noted above, total payments, now consisting of regionalized basic pay-
ment + greening payments, are reduced across the region by 22.5 %, from €307/ha
to €237.8/ha on average. Taking this decrease into account, the new distribution of
aid over plain and hill areas leads to a contraction which poorly affects what we
might call the 2nd level gross margin or 1st level gross margin + aid. In mountain
areas, the new distribution of payments is advantageous given that currently
average aid per hectare stands are only 190€/ha. Overall, however, across the
region, the reduction of 2nd level gross margin falls by nearly 11 %. The reorga-
nization imposed by regionalization and greening measures will clearly have a
negative impact on the overall agricultural sector of the Emilia-Romagna region.
Data disaggregated by province shows differing situations across the region. At
the province level, without considering altimetry: GSP/ha decreases by -11 % in
the provinces of Bologna (BO), Modena (MO), Parma (PR), and by -14.3 %
in Reggio-Emilia (RE), but there is a smaller contraction of between 5 and 7 %
in the remaining provinces. The bigger reduction in the ﬁrst group of provinces is
closely linked to the decline in livestock at each altimetry.
Figures 20.5, 20.6, 20.7, and 20.8 report a more detailed analysis of reform
effects, and show values speciﬁed for different altitude levels and provinces. The
GSP (Fig. 20.5) is affected by a big reduction in the mountainous areas of Parma,
Reggio-Emilia, Modena and Bologna, with decreases in values that range from
-15 to -25 %, while in hill areas (except for Bologna) show decreases ranging
Fig. 20.5 Variation in GSP

from -15 to -20 % approximately. The second graph (Fig. 20.6) reports dis-
similarity in total variable costs. In general these are aligned with the decreases in
GSP as processes are adjusted. But in some areas, such as mountain areas of Parma
and Modena, where farms show more structural rigidity, the realignment is less
Fig. 20.6 Variation in
variable costs
Fig. 20.7 Variation in 1st
level gross margin

proportional. For this reason, 1st level gross margin (Fig. 20.8) downsizes in
mountainous areas: Parma -45 %, Reggio-Emilia -25 %, Modena -30 %.
Finally, Fig. 20.8 shows the changes in the 2nd level gross margin. This margin
includes the effect of aid redistribution where mountain areas receive the most
advantage. But mountain areas and some hilly areas conﬁrm the biggest falls:
Parma (-33.4 %), Reggio-Emilia (-21.1 %) and Modena (-23.4 %), and all
show values well below the regional average of 11.9 %.
20.6 Conclusion and Policy Recommendations
The model shows that greening measures combined with the regionalized distri-
bution of basic payments will lead to substantial reductions in terms of GSP and
farm income in Emilia-Romagna, assuming constant prices. The biggest conse-
quences at farm level will be covering ﬁxed investment costs. Greening generates
a double effect: a contraction of harvested surfaces (e.g., forage, wheat, and maize)
and a big shift in land use and resources toward higher price crops (e.g., cereals
and tomatoes). The extension of regionalized aid to almost all UAAs with a single
payment level in all regions, accompanied by a reduction in the amount of aid, will
lower average aid per hectare for the plain areas, where at present farmers are
accustomed to higher levels of support, in favor of mountain areas. But despite the
increase in direct payments for mountain areas, these are the most badly hit by the
reform. Ongoing discussion between the DG-AGRI Committee and the Trilogue is
currently focusing on adjusting some of the greening criteria, both in terms of
Fig. 20.8 Variation in 2nd
level gross margin

practical application and access to specific aid. As noted previously, this analysis
was made on the basis of the European Commission draft proposal, so numerical
measurements may be taken as provisional and attention should be focused more
on the structural and territorial weaknesses.
But the potential impacts of the CAP reform require discussion and debate. As
currently formulated, the proposal offers fewer guarantees to specific local and
territorial farmers in that it delegates to an individual MS the decision to apply for
aid as ‘‘less-favored areas,’’ or to maintain coupled aid for ‘‘productions with a
local relevance.’’ This entails direct intervention by MS policy makers in order to
activate specific and voluntary schemes. Given that ‘‘the market’’ will be the new
driver for production choices by farmers, the strategic choices of European agri-
culture will have to take account of the need to protect local farms and entire
production sectors in disadvantaged areas, such as diary or livestock farming in
hill and mountain areas. A new mindset will be necessary; the lack of competi-
tiveness of farms in regional mountain areas is due in most cases to territorial
characteristics and economic environment rather the competitiveness of the farm
itself.
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